Stock Analysis

Returns At Caesars Entertainment (NASDAQ:CZR) Appear To Be Weighed Down

NasdaqGS:CZR
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Caesars Entertainment (NASDAQ:CZR) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Caesars Entertainment:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.082 = US$2.5b ÷ (US$33b - US$2.4b) (Based on the trailing twelve months to March 2023).

Thus, Caesars Entertainment has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Hospitality industry average of 8.8%.

View our latest analysis for Caesars Entertainment

roce
NasdaqGS:CZR Return on Capital Employed August 1st 2023

In the above chart we have measured Caesars Entertainment's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

The returns on capital haven't changed much for Caesars Entertainment in recent years. Over the past five years, ROCE has remained relatively flat at around 8.2% and the business has deployed 829% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Caesars Entertainment's ROCE

Long story short, while Caesars Entertainment has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Caesars Entertainment, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Caesars Entertainment may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're helping make it simple.

Find out whether Caesars Entertainment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.